Start-Up Trades Copyrighted Files on Net

A dozen Web surfers from 10 countries last month debuted Zden, a file exchange modeled on eBay that allows legal trading of music based on the Napster model.

Zden is located in a loft just outside Paris and has more conventional headquarters in staid Luxembourg. The idea, explained chief financial officer and co-founder Alexander Ludorf, is to offer safe and secure online storage.

"Our members can store their own files online and access them from anyplace they like," he said. "They can auction or sell files or buy other stored files or trade for them. And they can buy without credit cards."

Instead, they can use the online currency the company created for transactions on its sites -- the zee. One thousand zees are worth $1 in U.S. currency and, Ludorf said, "are liquid money. Owners can cash in anytime they want."

Sellers can take cash or keep their zees in special accounts for future purchases. Zden takes a 20 percent cut on all transactions.

"The Internet costs money," Ludorf said. "You can't have venture capitalists pump money into businesses that have no turnover and don't pay their bills. People will have to pay to use Internet services.

"We've gone halfway in that direction. Members can use our storage services without charge, but not the auction platform."

Most of the files Zden stores come directly from the original producer, thus maintaining copyright protection.

"We have a lot of music on our Web site," he said. "For example, a Swiss disc jockey mixes his own pieces which he offers as MP3 files on our site for 500 zees or 50 cents. His copyright is protected. He gets money for his product. We do the same thing Napster did but legally."

Zden, which went live last month, is looking for Internet professionals and creatives to beef up membership.

"Webmasters can offer scripts or templates," he said. "Designers can put digital pictures or Flash presentations up for sale."

Some of the deals are tiny.

"Say I'm working on a small presentation on my own Web site and I need a few graphics -- lettering or a small flower," he said. "I could buy them for 30 zees from Zden. I could then turn around and sell my complete presentation for 3,000 zees."

The idea has caught some media attention, especially in Germany, where newsmagazines Der Spiegel and the intellectual weekly Die Zeit wrote major pieces. It has netted the start-up 70,000 members.

"We had information Web sites up where would-be members could register without charge," he said. "We see ourselves as an international firm, and our membership already reflects that attitude."

Some 20 percent of members come from the United States, Ludorf said, with 9 percent coming from Russia, 7 percent each from China and Japan, 4 percent from Germany, and 3 percent each from France and the United Kingdom.

The site, therefore, has to use English as the initial "lingua franca," with translations into other languages due once the business is fully established.

The site was promoted exclusively on the Web with incentives such as "member bring a member" built in. Those who do get a 1,000 zee bonus. The start-up does not pay other sites for carrying its banners.

"We're relying on incentives, the Web and PR to reach our goal of 250,000 members," he said. "If you have a good offer, you can do that without spending on promotion."

Zden has received financial support from a group of Belgian investors and credit from a Luxembourg bank. It has contacted a German venture capital firm and hopes for additional venture capital support in the spring.

The starting dozen expect to move beyond the Paris loft this year to establish national offices.

"As soon as we are more or less operational here, I will be moving on to set up in Germany," Ludorf said.